Market At Record Highs, Why Is Investment At Record Lows?

We're going to switch gears now and take another look at the stock market. Last week about the same time, we talked about how the Dow has been hitting record highs, but did you know that stock ownership in this country is at record lows? According to a recent Gallup poll, only about half of Americans, 52 percent, now own stocks. That's the lowest level since Gallup started tracking that number back in 1998.

We wondered what, if anything, that means, so we've called, once again, upon one of our money coaches, Roben Farzad. He's a contributor to Bloomberg Businessweek and he's with us now. Welcome back. Thanks for joining us.

ROBEN FARZAD: My pleasure. How are you?

MARTIN: Good. Well, just to recap, we're seeing almost daily records on the Dow, the Dow Jones Industrial Average. I know that there's some dispute about whether that number really means anything, but what do you think that means?

FARZAD: I think, across the board, you're seeing markets in the United States hit highs, and it's not just the Dow. I think it illustrates writ large that the money is awash in the system. The Federal Reserve has this gigantic fire hose and it's splashing money onto the plain and, inevitably, it's going to make its way down to corporate balance sheets and especially when people can't really get an opportunity in their savings. Institutional investors have yields that are so low, they're going to chase return in the stock market, obviously.

MARTIN: Now, a lot of people think and, in fact, our guest last week said that even if you aren't in the market, this is good news for the average American. Do you agree?

FARZAD: It's good news. Psychologically, you get that ping on the nightly news, the Dow ends at another high today. The S&P, the NASDAQ at a 12 and a half year high. But it's not very comforting if you're not exposed to that. If you say, well, what if I didn't liquidate my 401K three, four years ago? What if I didn't take that hardship withdrawal? I'd actually feel the wealth that I get a brokerage statement now that shows that the balances are higher. It's a regretful incident when, in fact, you did have to sell out and, right now, you realize that, if you didn't, if you could have gotten funds somewhere else, you would be partaking in this rally financially.

MARTIN: Well, that was going to be my next question, which is why is it that the percentage of Americans who own stocks is at this point? And I should, you know, mention that, since 1998, you know, that's not a huge long period. The high of stock ownership in this country was 65 percent before the financial crisis hit. Now, 52 percent. That is a real number of people who are no longer in the market. So is it your view that that's mainly because of people who cashed out because they needed emergency funds and that's where they found their emergency funds?

FARZAD: I think they also got spooked in a market that was down 40 percent. You had a flash crash after that. It was very easy to say, gosh, the world is falling apart. The last thing I can depend on is this whimsical stock market. I'm getting out.

In addition to that, I could be foreclosed on. I could potentially lose my job. If I didn't lose my job, why am I not tapping this asset, be it in my brokerage account or my company sponsored 401K? And we saw that. We saw that in spades. We saw hardship withdrawals. We saw companies reporting that this was being done at a record clip. And very few people could have imagined that, in less than five years, the market would have round tripped back and been at an all time high right now.

MARTIN: Well, what is your - what would you have to say about why this matters? I mean, why do you think this is important for the country to think about? I mean, because, you know, the theory behind moving from defined benefit pensions to defined contribution plans, 401Ks, 403Bs, things like that is that people should have the right to decide, you know, how they use their money. If they feel that their money is better spent, say, paying off a mortgage or staying out of foreclosure, they should have the right to do that.

What's your theory or what do you have to say about why you think this matters, why it's important to talk about this?

FARZAD: Well, because we're on our own. As you described yourself, these are self-directed plans now. The company is, effectively, handing you a series of pamphlets for a mutual fund company and says, go and decide on your own. And you're free to pull out the money when you want to do it. You're free to not contribute when you want to do it. And, time and again, we see that the behavior is self-destructive. The investor thinks he's doing the right thing and getting out when the market is tanking and, right now, you see more and more investors who had the money sidelined want to get back in when the market is hitting an all-time high.

There's no - and I don't want to sound too paternalistic. There's no one out there necessarily guiding hands. There's no great financial coach at companies that will go out there and hold every individual investor's hand. And this matters because, increasingly, you're on your own. Increasingly, we don't know about the solvency of Social Security. You're going to need the market to help you, especially after your savings and retirement accounts have taken such a wallop in this great recession.

MARTIN: Do you feel that this is also going to have an effect on the equality or inequality of net worth? I mean, we often talk about sort of inequality of income, but the inequality of net worth of people, the kinds of assets that people have to live on later on. I guess what I'm asking is, do you think that there could be a problem down the road when people who are middle income have pulled out money out of the market and then, maybe 10 years from now, don't have enough to live on in retirement?

FARZAD: I absolutely think that's a problem and - yes - the stock market still remains the province of the wealthy or the upper classes who have access to the type of jobs, for example, that can give you a 401K plan, that have the disposable income to put in separate brokerage accounts and you've already seen such a widening of fortunes, a kind of a divergence of fortunes in this case. And it's only seen worse. I mean, the Gallup data showed how the 30 to 49 age group saw the biggest declines in equity ownership and unemployment disproportionately hits this group. Foreclosures disproportionately hits this group, so there's a lot of catching up to do and it's a quandary right now. Do you get back in when the market's at an all-time high? Do you even have money on the sidelines to get back in? There are no easy answers.

MARTIN: Another quote from the study. "While soaring stock values may be an incentive to jump back into the market, continued high unemployment appears to be acting as a barrier. Without a job, some Americans may simply be unable to afford stock investments while others may fear the market is still too risky as long as joblessness remains a national problem." End quote. Again, that's from the study. What do you say about that?

FARZAD: Yeah. I think it still speaks to the fact that this is an optional thing for investors to get back in the market. When you look at it, though, over time, you're going to need something to help you accelerate, to help you catch up with the self-inflicted damage of the past five or six years. Not just self-inflicted, again, Michel. A lot of this came from out of left field. It's the worst economic calamity of our lifetimes.

But, again, you have to be able to have something, an asset class that can keep up with inflation, that can keep up with the cost of living and do you something for retirement. And we've seen the market be that asset class, historically.

MARTIN: No more than a third of younger and lower income households are in the stock market, so a final thought, Roben. Younger Americans - do you think that there are implications for them?

FARZAD: Yeah, definitely. These are the years where it really matters, where you could really do yourself a big favor by being involved in the market, by - if you're single, if you have a job. If you're in a position to garnish something from your wages and put it in a 401K plan, that is where it could really compound and do great things for you and, if you're not, you're losing out on your 20s. It's definitely a great age to be there, to be diversified. And, unfortunately, these are the people who look back and, when they are of means, they're going to say, wow, I missed out on that time.

And I think this is where policymakers have to look more into financial education. You don't have people immediately out of college or people that age necessarily thinking that this is what I need to buck up and have some sort of financial self-determination. It's left to your HR provider at work to kind of tell you something or two about it.

MARTIN: If that person still is there. Roben Farzad is a contributor to Bloomberg Businessweek. He was with us from Richmond, Virginia. Roben, thanks so much for joining us once again.

FARZAD: Thank you, Michel. Take care.

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MARTIN: Just ahead, Hollywood superstar Angelina Jolie is in the headlines by her own choice this time. Genetic testing showed she was at high risk for breast cancer, so she decided to have a double mastectomy to improve her odds and she wrote about it. We'll talk with one mother and daughter who face the same dilemma.

REGINA BRETT: As a parent, you don't want your children to go through anything. You'd take a bullet for them if you could and that day she found out she was positive, I just felt a real deep sadness.

MARTIN: Their gut-wrenching dilemma and the choices that came next. That's ahead on TELL ME MORE from NPR News. I'm Michel Martin.